ajinomoto co., inc. (2802) forecast for fy2018 (ending ... · • business strategy: aim for steady...

Ajinomoto Co., Inc. (2802)Forecast for FY2018 (Ending March 31, 2019) with Outlook

Takaaki NishiiPresident & CEO

November 7, 2018

ContentsI. Progress on the FY2017–2019 (for 2020) Medium-Term Management Plan

II. Growth Strategy

III. FY2018 Financial Strategy

IV. Toward the Next Medium-Term Management Plan

Reference Material

Appendix: Consolidated Results Interim period ended September 30, 2018

FY2018 Forecast by Segment

Note: Business profit (consolidated) in this material:Sales - Cost of sales - Selling expenses, Research & development expenses and General & administrative expenses + Share of profit of associates and joint ventures

• Effect of exchange rates in translation and trade in 1H: Sales - ¥3.8 bil., BP- ¥0.6 bil.

Profit decreased due to a slump in Japan Food Products and increased costs in International Frozen Foods, despite sales increasing in 1H.

Revised the initial FY2018 forecast. Sales and profit will increase in 2H due to countermeasures to issues, but full year business profit will stop at the level of the previous year.

1Copyright © 2018 Ajinomoto Co., Inc. All rights reserved.

Sales Business profitFY2018 Revised forecast ¥1,155.2 bil. ¥95.7 bil.

(Versus initial forecast) -2% -7%

(Versus previous year) +3% +0%

I-1. Financial Statements for the Interim Period Ended September 30, 2018

Year-on-Year(% increase/decrease)

Sales Business profit

1Q-FY18 +5% -7%

2Q-FY18 +1% -3%

1H-FY18 +3% -5%

Excluding currency translations and exchange rates in trade (+4%) (-4%)

★For details, refer to handout material: Consolidated Results Interim Period Ended September 30, 2018

Copyright © 2018 Ajinomoto Co., Inc. All rights reserved. ２

I-2. FY2018 Countermeasures to Issues and Expected Risks

1. State of initiatives in the businesses with issues1) Canned coffee Birdy® in Thailand: New price accepted by the market. Continuing to strengthen

sales. On track. 2) Coffee products in Japan: Short-term measures and medium-term initiatives required for

challenging competitive and market environment.3) Frozen foods in North America: Despite bottoming out after completing transfer to new factory

and raising prices to counter logistics costs, production and logistics measures still expected to require time.

4) Frozen foods in Japan: Sales level with the previous year, due to home-use falling back from the previous year’s growth and stiffening competition in major categories. Reconsider strategy by category.

2. Expected risksAfrica and Turkey: Depreciation of currencies accompanying financial losses and insecurity regarding politics, decrease in consumption and changes in political policies.

95.6

10.7 5.7 -8.2

-0.8

103.0

-6.8 -2.2 2.1 0.9 -1.3

95.7

70

80

90

100

110

120

130

FY17actual

Businessgrowth

Primarily costreductions

Fermentationraw materials,

fuel prices,etc.

Exchange rate(translations +

trade)

FY18initial

forecast

Japan FoodProducts

InternationalFood

Products

Life Support Healthcare Other FY18 Revisedforecast

Exchange rate$=110(¥ bil.)

Fermentationraw materials,

fuel prices, etc.


Primarily cost

reductions

+0%

+7%

Includes improvement of businesses with issues

Exchange rate$=110

Exchange rate$=111

FY18revised forecast

I-3. Factors Influencing FY2018 Business Profit (vs. initial forecast)

Includes raw materials and fuels: +¥2.8 bil. and exchange rate (translations, trade): -¥0.1 bil.

0

20

40

60

80

100

120

140

0

500

1,000

1,500

Sales (left scale) Business profit (rignt scale) Profit attributable to owners of the parent company (right scale)

(¥ bil.)

64.755.0

95.7

1,248.0

(+7%)

1,114.7

95.6

60.7

103.0

116.0

1,155.2

61.0

FY17Actual

FY18Initial forecast

FY18Revised forecast

FY19 Projected(As of May 2018)

ROE 9.6% 9.5% 8.6% 9.8%

EPS ¥105.76 ¥110.09 ¥99.26 ¥118.09

Downward revision for FY2018; even though recovery is expected in 2H, it will not make up for late start to 1H. Further revision of projections for FY2019 after bringing forward launch of structural reform based on issues in FY2018.

Copyright © 2018 Ajinomoto Co., Inc. All rights reserved. 4

1,184.0(+6%)

(+3%)

(+8%)

(+1%)

(+21%)

(-8%)

(+17%)

(+0%)

I-4. Progress on the FY2017–2019 (for 2020) Medium-Term Management Plan

% (YoY change)

(¥ bil.)

Profit for FY2018 revised in conjunction with downward revision of sales and business profit.


I-5. Profit for FY2018

(¥ Billion) -: lossesFY18Initial

forecast

FY18Revisedforecast

FY17Actual Difference

Sales 1,184.0 1,155.2 1,114.7 40.4

Business profit 103.0 95.7 95.6 0.0 FY17 actual: Share of profit of associates and joint ventures3.9

Other operating income & expenses (-: losses) -5.7 -5.7 -16.9 11.2

Impairment losses - - -11.6 11.6 FY17 actual: Animal nutrition 7.4, Thailand MSG　2.6

Other -5.7 -5.7 -5.3 -0.4 FY17 actual: Animal nutrition structural reform expense 0.7

Operating profit 97.3 90.0 78.7 11.3

Financial income & expenses ()-: losses) -0.7 -0.7 2.1 -2.8

Profit before income taxes 96.6 89.3 80.8 8.5

Income taxes 25.5 24.7 15.3 -9.4 Tax rate: FY17 actual 19%, FY18 revised forecast 27%

Profit (includes discontinued operations) 72.2 65.6 68.1 -2.5

Profit attributable to owners of the parent company 61.0 55.0 60.1 -5.1

Profit attributable to non-controlling interests 11.2 10.6 8.0 2.6


II. Growth Strategy



Reference Material




6

◆Steady growth in dry savories (umami seasonings + flavor seasonings) category,and high growth in menu-specific seasonings

100 115 139 169

FY16actual

FY17actual

FY18forecast

FY19MTP

CY15 CY16 CY17 CY19target

21% 22% 23% 24%

Changes in Ajinomoto Group market share for dry savories

1H-FY2018: local currency-based sales YoY

AJI-NO-MOTO® PLUS (Thailand)Menu-specific

seasoning sales(Taking FY16 as 100)

II-1. Growth StrategyInternational Food Products: Seasonings

1) Umami seasonings: 101%Growth of AJI-NO-MOTO® PLUS (113%)

2) Flavor seasonings: 104%Sales growth in leading countries

3) High growth of menu-specific seasonings (powder and liquid): 113%Rapid expansion in share of growing market in ASEAN countries

Copyright © 2018 Ajinomoto Co., Inc. All rights reserved.


◆ Home use: Steady growth in existing brands• Market environment: Basic seasonings market shrinking in conjunction with population

decline, changes in consumer lifestyles, and other factors, but processed foods and menu-specific seasonings remains robust.

• Business strategy: Aim for steady growth with value-added proposals that capture consumer needs.

Processed foods: Knorr® brand

Menu-specific seasonings: mainly Cook Do® brand

• Home-use soup market: CAGR +2% (FY15-18 forecast)• Ajinomoto Co. sales growth rate: CAGR +6% (FY15-18

projected)• Meal type: personal

• Menu-specific seasonings market: CAGR +0.9% (FY15-18forecast)

• Ajinomoto Co. sales growth rate: CAGR +2% (FY15-18projected)

• Meal type: family

Main points of strategyEasy preparation, +breakfast, +anytime and anywhere, +pasta (light meals), +vegetables

90%

100%

110%

0

40

80

120

FY15 FY16 FY17 FY18 forecast

Menu-specific Seasonings Market and Ajinomoto Co. Sales Growth Rate (FY2015 = 100)

Market Ajinomoto Co. sales menu-specific seasonings

Source: Market figures are Ajinomoto Co. estimates

II-2. Growth StrategyJapan Food Products: Processed Foods

Main points of strategyAuthentic Chinese, +full variety, +family meals,+familiar side dishes

90%

100%

110%

120%

0

40

80

120

FY15 FY16 FY17 FY18 forecast

Soup Market and Ajinomoto Co. Sales Growth Rate (FY2015 = 100)

Market Ajinomoto Co. sales Knorr® brandKnorr®

(¥ bil.)

(¥ bil.)


1. Market environment: Market in Japan expanding

2. Business strategy: Working on business profit in a market with intensified competition in some categories

Home-use and restaurant and industrial-use market trends (YoY %)

FY15 FY16 FY17 FY18 1H

FY18projected

Home-use 100 103 104 102 102Industrial-use 104 102 104 102 103

Source: Ajinomoto Co. research, figures for home-use are for cooked frozen foods

Home-use market projected to grow steadily in FY2018 and beyond, at an expected annual rate of 2%.Market has sufficient further growth potential due to creation of high value-added products and development of new fields.

• In 1H, sales and profit fell mainly due to struggling mainstay products, such as karaage andfried rice, and increased sales expenses for products in new fields, and also, but less, due to falling back from the previous year.

• In 2H, planning for steady expansion with introduction of TV commercials and development of activities linked to measures, centered on expansion of Gyoza lineup.

• For full year, projecting sales in line with previous year but decline in profit.

II-3. Growth StrategyJapan Food Products: Frozen Foods


53%

47%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Japan50.8 bil. servings

In-home

Away-from-home

Market structure

Topics

Offices(11.9 bil. servings)

Food service(6.3 bil. servings)

Outdoor(5.4 bil. servings)

Growth in convenience store coffee

(2013→2017: 224％)

Instant coffee(12.7 bil. servings)

Regular coffee(8.7 bil. servings)

Stick-type coffee(2.5 bil. servings)

Growth in stick-type coffee

(2013→2017: 122％)

1.8 bil. servings

YoY

100%

100%

100%

95%

99%

109% 0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Market Trends for Stick-type Products

Coffee

Non-coffee

(¥ bil.)

◆ Coffee market structure: Growth in away-from-home. Growth of stick-type in in-home market, including non-coffee types.

◆ Business strategy: Focus on stick-type for home-use market. Differentiate by improving quality. Create new demand by creating a variety of products and a new ad strategy. Aim to expand outlets over the medium term in restaurant and industrial-use markets.

Source: Estimated by Ajinomoto Co. based on data from SRI and All Japan Coffee Association

2017

2019 +3%growth expected

II-4. Growth StrategyJapan Food Products: Coffee Products

Apr. –Sept.2018

Vs. prev. year +12%

Vs. prev. year -1%

9


-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

-5.0

15.0

35.0

55.0

75.0

95.0

115.0

FY15 FY16 FY17 1H-FY18 FY18 forecast From FY19

International Frozen Foods Trends in Sales/Business Profit Sales

Business profit

Business profitmargin

◆ Double-digit growth in sales, primarily for Asian food products. Have been working on improving productivity to increase profitability and are starting to get results (Hayward factory). There are issues in increasing efficiency of logistics.

II-5. Growth StrategyInternational Food Products: Frozen Foods (North America)

Maincategories

FY15–FY18 (forecast)Sales CAGR(local currency base)

Asian food 8.1%

Mexican food 1.0%

Appetizers 5.0%

Establish system

Adjust SKUAsian food Appetizers Mexican

foodMain

initiatives

1) Top line expansion for main categoriesAsian food: Increase handling of Ling Ling®, TAI PEI®, and TOKYO STYLE SHOYU RAMEN

2) Impact on earnings due to hike in logistics expenses and rising manufacturing costs, and countermeasures• Hike in logistics expenses since December 2017 due to rising fuel prices and restrictions on driver mileage, etc.

→ Minimize impact by increasing product prices• Acquired San Diego factory (May 2018), increase operation rate by increasing production• Commenced operation on all lines at Joplin factory (June 2018), without achievement of stable production, manufacturing costs rose

→ Launch of production improvement project, with aim to steadily improve costs from 3Q onward

(¥ bil.) (from FY15, consolidated)

Copyright © 2018 Ajinomoto Co., Inc. All rights reserved.11

*1 CDMO: Contract Development & Manufacturing Organization*2 HAPI: Highly Potent Active Ingredients – e.g. anti-cancer drugs. Containment technology required for manufacturing.*3 ADC: Antibody-drug conjugate

◆ Build global service-providing scheme as“AJI BIO・PHARMA SERVICES”

Integrated U.S. and EU CDMO*1 businesses. Scheduled to integrate Japan CDMO business including GeneDesign, Inc. in FY2019. Aim for continuous high growth with broad range of service offerings, mainly highly potent and high value-added products including new fields from small molecules to large molecules, HAPI, Oligonucleotides, ADC, and so on.

Global marketBroadly cover growingfieldsMore efficient supply chainIntegrate customernetwork

Growth of Pharma Market

Oligonucleotides

ADC

Fill & Finish

API, HAPIBusiness

Integration

Expand intoGrowingFields

($ bil.)

II-6. Growth StrategyHealthcare: Pharmaceutical custom manufacturing

Target contracts in FY18• Commercial pharmaceuticals:

40 or more• Drug development:

150 or more

1,100

1,500

0

400

800

1,200

1,600

2015 2021Source: Estimated by Ajinomoto Co. based on data from Results healthcare

*2

*3

Address waste plastic problemAim to reduce the Group’s plastic waste to zero by 2030


• Promote Ajinomoto Group-wide efforts to enhance workstyle (productivity) Held an Ajinomoto Group Work-Style Innovation Promotion Conference, participated in Japan’s Telework Days: July 23–27

• Promote a non-territorial office design at the Kyobashi head office through paperless operations

Highlights

12

II-7. Non-Financial Initiatives (1) *ASV: The Ajinomoto Group Creating Shared Value

ASV* Value CreationStories

Social

S

We contribute to health and well-being by utilizing our leading-edge bioscience and fine chemical technologies which also leads to deliciousness technologies, and by delivering good and healthy food

We contribute to the development of a society that enables strong family/social bonds and diverse lifestyles through eating well

1

2

Environ-mental

E

We contribute to the sustainability ofsociety and the earth, with ourcustomers and local communities,across the value chain fromproduction to consumption

3

Gover-nance We co-create value with each region

through the perspectives of thecustomers, with our global, top-classand diverse talents

4

G

Further popularize Umami and dispel negative image of MSGWORLD UMAMI FORUM: held in New York, U.S., September 20–21, 2018Participants: Approx. 210 people from 15 countries (nutritionists, chefs, food writers, media, investors, etc.)

・Steadily increase smart cooking• Popularization of smart cooking using simple to prepare foods such as frozen foods

and soups• Growth via expansion of menu-specific seasonings• Growth via business expansion of Integrated Food Solutions for food services in Japan

・Promote various initiatives in line with environmental targets

・Promote nutrition improvement initiatives

・Attain innovation by improving engagement (productivity)


Japan, North America, South America, Asia, Africa

Organization of influencers(Chefs, nutritionists, food writers)

Media Nutritionistnetwork

• Key message: “Delicious low-salt food using umami seasonings (MSG and others)”“MSG is the purest form of umami”

NO-MSGNo

chemical additives

• Target position:

Socialmedia

Chefnetwork

◆ Future communication strategyU.S. Food Forward* image

Now 2020target

Positive imageof UMAMI

66% 90%

Negative image ofMSG

39% 20%

II-7. Non-Financial Initiatives (2): Umami and MSG

*Estimated to be approximately 10 mil. people in the US.


II. Growth Strategy



Reference Material




Dividend per share (¥)


(¥ bil.) FY17 actual FY18 plan

Operating cash flow 126.6 120.3

CapEx 79.4 94.5

Free cash flow 27.5 25.8

Return to shareholders (dividend) 17.0 18.4

Return to shareholders(share repurchases) - 40.0

Cash and deposits 187.8 154.1


Based on the policies of the FY2017–2019 MTP, generate cash flow, invest for growth and provide stable shareholder returns to realize business strategy.

Cash Flow

Operating cash flow: approx. ¥350 bil. (3 yrs.)

EBITDA to sales ratio:upper half of 13% level

Shareholder Returns

Payout ratio: target 30% per FYFY17 actual: ¥32 (annual)FY18 forecast: ¥32 (annual)

Total shareholder return: aim for 50%+Flexibly consider share repurchases

Investments for Growth

Engage in integrated management of CapEx, R&D, M&A

- R&D: approx. ¥29.0 bil. per FY- CapEx: FY18 forecast, approx. ¥94.5 bil.

Net debt is interest-bearing debt -Cash on hand and in banks x 75%

・M&A: finance by using interest-bearing debt (aim for D/E ratio of 50%)September 30, 2018 actual: 39.9%

・Aim to repurchase non-controlling interests by FY2019

・Share repurchase: retired(October 10, 2018)

Payout ratio(%)

16 1618

20

2428 30 32 32

36.726.1

24.229.1 30.6

33.9 32.3 30.3 32.2

0

10

20

30

40

50

60

70

14

16

18

20

22

24

26

28

30

32

34 Dividends persharePayout ratio


II. Growth Strategy



Reference Material






Global Top 10 Class Food Company with Sustainable Growth

The company to be realized through the FY2020–2022 Medium-Term Management Plan

• Slowing growth of the consumer foods businessSlowing of the growth engine due to dispersion of assets and business areas

• Grow the healthcare business in leading edge areas such as pharmaceutical custom manufacturing and cell culture medium

• Efficiency of the Group corporate sector

Current Issues

‐ Switch to an asset-light business model, strategically consolidate business areas in the consumer foods business (Savory, Asian cuisine frozen foods, Foods with Functional Claims and drinks, etc.)

‐ Start new task forces directly under the control of the PresidentEx.: Consolidate the Frozen Foods assets, get both improved growth and ROA

Consolidate common corporate functions, etc.

Framework of Change—Start This Fiscal Year

Quickly bring about a management structure that realizes a business profit margin of 10% and ROE of 10%, even with sales CAGR of 5%


II. Growth Strategy



Reference Material




FY17 Actual

778USD mil.

79%

FY20 Target (Organic growth)FY19 Expected

-

-

-

-

--

FY18 Initial forecast

Reference 1Copyright © 2018 Ajinomoto Co., Inc. All rights reserved.

FY18 Revised forecast

-

---

-

-

-

Roadmap to a "Genuine Global Specialty Company"

Sustained growth as a global top 101)

class food companyBecome a global

top 10 class food company

Sustainable value creation as aGenuine Global Specialty Company

Global top 10 class food company level1)

Become a global top 10 class company with robust business structure

¥130 bil.¥150 bil.

3)

Non

-fina

ncia

l3)

Inte-grated

Resolution of environmental issues

Brand value5)

Contribution to eating together

Comfortable lifestyles (AminoScience)

EPS growth rateROE

Business profit marginBusiness profit

Intl. sales growth rate2)

Spare time created

Meats and vegetables consumption

Employees with high engagement

1. Global top 10 class status defined as business profit of ¥130.0 billion or higher with IFRS accounting standards.; 2. Consumer foods, local currency basis 3. Refer to FY2017-2019 MTP (Feb. 17, 2017); 4. Includes Frozen foods; 5. Measured by Interbrand

¥956 bil.8.5%9.6%13%5%4)

Meats: 7.2 mil. tons; 17.0%(8.3 kg/person/yr)

Veg.: 4.4 mil. tons; 7.4% (5.1 kg/person/yr)

60 occasions / household / yr

37 mil. hrs / yr (5 hrs / household)

19.80 mil. people

¥103.0 bil. ¥95.7 bil.

18%Previous year growth rate + α

¥116.0 bil.

9.8%9.3%

¥137.0 bil.–

1,500 mil. USD or more

70 occasions / household / yr

22 mil. people

10% or higher10%

38 mil. hrs / yr (6 hrs / household)

80%

Double-digit annual growthDouble-digit annual growthMeats: 8.6 mil. tons; 19%

(9.7 kg/person/yr)Veg.: 5.5 mil. tons; 8%

(6.2 kg/person/yr)

Reported in materials such as the Integrated Report

To be reported in the Integrated Report and

Sustainability Data Book

8.7%9.5%4%7%

8.3%8.6%-6%Fi

nanc

ial

7%


Foreign exchange rates (vs JPY)

Avg. rate

USD 111.00 ±¥1 → approx. ¥100 million

EUR 129.00 ±¥1 → approx. ¥50 million

THB 3.38 ±¥0.01 → approx. ¥100 million

BRL 29.90 ±¥1 → approx. ¥200 million

Sensitivity of translation effectsto full year B.P.

- 1 JPY vs USD → approx. ¥0 million

- 0.1 EUR vs USD → approx. - ¥100 million

- 1 THB vs USD → approx. + ¥500 million

- 0.1 BRL vs USD → approx. + ¥400 million

Impact of exchange rate for trade(Sensitivity of translation effects to full year B.P.)

FY2018 Assumed Exchange Rate and Exchange Rate Sensitivity

Exchange Rate Sensitivity

Assumed exchange rate (vs. JPY) * Average rate during the period

2Q 1QUSD 110.00 111.00 111.43 109.10 110.85 100.0EUR 130.00 129.00 129.55 130.03 129.66 110.0THB 3.28 3.38 3.38 3.42 3.36 2.80BRL 33.85 29.90 28.24 30.27 34.45 30.3

FY18Initial

forecast

FY18Revisedforecast

FY17-19MTP

FY18 Actual FY17Actual*

Reference 2


Forward-looking statements, such as business performance forecasts, made in these materials are based on management's estimates, assumptions and projections at the time of publication. A number of factors could cause actual results to differ materially from expectations.This material includes summary figures that have not been audited so the numbers may change.Amounts presented in these materials are rounded down.

ajinomoto co., inc. (2802) forecast for fy2018 (ending ... · • business strategy: aim for steady...

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